Germany’s industry is under heavy pressure. Two years of recession, no real growth in sight, and a China shock that has turned a former preferred partner into a tough competitor.Industry associations speak of a free fall. Companies are losing orders, cutting costs, and still not moving forward.
Details
🔧 Industry in decline: The BDI warns that the German economy is in its “deepest crisis since the founding of the Federal Republic”. For 2025 the association expects a 2 percent drop in output, which would be the fourth consecutive year of losses.
🇨🇳 From growth engine to competitor: For years China was a key sales market and manufacturing partner for German firms. Today China builds its own high tech, produces cheaper and faster and is taking market share from German companies both at home and in third countries.
🚙 An auto nation under pressure: Germany’s carmakers are losing speed in EVs and software. Volkswagen is moving an entire EV model to China because production there costs roughly half as much (we reported).
🌍 Geopolitics add fuel to the fire: China maintains close ties with Russia and shows growing confidence in trade disputes. Germany’s foreign minister Johann Wadephul will travel to Beijing next week to stabilise relations and prepare Chancellor Merz’s visit.
Germany’s three weak spots
- Costs and energy: High electricity prices after the gas and nuclear exit, rising social contributions and costly regulation are driving up operating costs. Energy intensive industries see Germany as a high risk location.
- Export dependence: More than 40 percent of GDP depends on exports. China is becoming an equal competitor and the United States is shielding itself behind tariffs. The traditional export model is hitting structural limits.
- Reform backlog and innovation gap: Industry groups complain about bureaucracy, complicated rules and too little momentum in digitalisation and future technologies. In batteries, AI and software, Germany lacks clear priorities and bold investment, while China surges ahead.
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